Why Activist Elliott May Ultimately Fail in the Fight Against BHP

The updated guidance for the U.S. shale division came less than 24 hours after Elliott presented a revised version of its campaign for change at BHP.

BHP chief executive Andrew Mackenzie will pitch his defence against activist investor Elliott directly to Australian shareholders next week, as the company seeks to maximise the value of its U.S. shale assets before any potential sale or demerger.

"At this conference one year ago, I outlined ambitious plans to improve returns and grow the value of BHP".

BHP was also reportedly set to meet with members of Elliott on the sidelines of a conference this week.

Among their demands, Elliott Management wants to see BHP end their dual-listing, spin off oil and gas assets in the US and increase returns to shareholders.

"Elliott is now calling for an in-depth, open and timely independent review of the petroleum business - with full disclosure of the review result", it said.

BHP Billiton's massive Jansen mine, which is under construction about 140 kilometres east of Saskatoon, could go to the company's board of directors for approval next summer and be producing potash by 2023.

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BHP spent ~$20B buying USA shale assets earlier in the decade and has since written off more than half the value of the acquisitions, and Mackenzie admits "the acquisitions that took us into this business were poorly timed, that we paid too high a price".

BHP is however divesting non-core parts of its USA shale assets.

They showed that BHP is not the only miner with assets that might not line up - rivals like Rio Tinto, Anglo American, and Glencore all were said to have parts of the company that do not mesh well together.

"The current period of shareholder activism could result in a break-up and/or a significant adjustment of the company's structure", Citi said in a note this week.

However, BHP says the costs and associated risks of Elliott's proposal would "significantly outweigh any potential benefits".

Elliott last month began pushing the mining company to sell off oil assets assets and return capital to shareholders. Raymond James Financial Services Advisors Inc. bought a new position in shares of BHP Billiton plc during the fourth quarter worth approximately $218,000.

BHP first flagged the notion of rigs returning to its shale acreage in February, and the company flagged in April that it was looking to sell some of its lesser shale assets like the Hawkville and Fayetteville shales in South Texas and Arkansas respectively.

Such a buyback, if the current valuation remained unchanged, would lead to $2.4 billion in value accretion, equivalent to more than 12 times Elliott's expected costs of unifying BHP's dual listings, it said.

Elliott has put the cost of unification at $200-million and said BHP's $1.3-billion estimated cost was "flawed and misleading".

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